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LGT Navigator: Cautiously optimistic market sentiment as the year draws to a close

December 23, 2021

As 2021 draws to a close, investors in the equity markets remain cautiously optimistic ahead of the Christmas weekend, despite acute corona concerns. Looking ahead to the new year 2022, the focus is likely to remain on the development of the pandemic and further vaccine development, inflation and disruptions in global supply chains as well as the monetary policy turnaround of central banks and, last but not least, mega issues such as climate change or digitalization. Geopolitical tensions should also not be underestimated and must remain on investors' radar.

Cautiously optimistic market sentiment as the year draws to a close

On the New York trading floor, it remained relatively quiet shortly before the Christmas holidays and indices extended their gains again in the middle of the week. The Dow Jones Industrial rose by around three quarters of a percent, posting a gain of just over one percent so far this week. The S&P 500 closed just under one percent higher and on the Nasdaq, the technology indices also posted solid daily gains, driven by Tesla shares, among others. Tesla CEO Elon Musk had said in an interview that he had now reached the target of selling more than ten percent of his Tesla shares. On the Asian stock exchanges, most stock indices continued the positive guidance from the US and Europe and presented themselves friendly on Thursday.

Over the Christmas holidays and the week until the turn of the year, no significant economic data will be published, and the central banks have already positioned themselves in advance. New impetus will then provide the results of the purchasing managers surveys at the start of the year.

US economy held up better than expected in Q3

The US economy grew somewhat more strongly in the third quarter than had been assumed in previous estimates. According to revised data from the Bureau for Economic Analyses, the world's largest GDP expanded at an annualized rate of +2.3% from the previous quarter. The last calculation had shown +2.1%. This means that the pace of growth has slowed significantly compared with the previous quarter. In Q2, an annualized growth rate of +6.7% was reported. Private consumption was stronger than expected in Q3, increasing by +2.0% instead of the +1.7% initially reported. 

More recent data point to a further slowdown in the final quarter. For example, the Chicago Fed's economic activity barometer (Chicago Fed National Activity Index) fell back to +0.37 points in November from +0.75 points in October. From a value of zero, the CFNAI signals economic growth at historical trend levels.

Uncertainties in the ECB inflation outlook

According to ECB Executive Board member Isabel Schnabel, the significant increase in inflationary pressures in the eurozone could last longer than the ECB had expected. However, she said that the ECB still expects inflation to decline over the next year. The question, however, is how fast and how strong the decline will be. There is an upside risk in the ECB's inflation outlook, central bank director Schnabel commented in an interview with French newspaper “Le Monde.” In the official forecast, the ECB currently expects an average inflation rate of +3.2% next year and a decline to +1.8% in 2023. The normalization of monetary policy must be a gradual process, she said, because if the ECB reacts too quickly, there is a risk that the economic recovery will be stifled by a too abrupt tightening of financing conditions.

Economic Indicators December 23

MEZ Country Indicator Last period
08:00 GE Import Prices (November, m/m) +3.8%
09:00 ESP GDP Q3 (q/q, revision) +2.0%
10:00 IT Business Climate (December) +116.0
10:00 IT Consumer Confidence (December) +117.5
14:30 US Consumer Spending (November, m/m) +1.3%
14:30 US Personal Income (November, m/m) +0.5%
14:30 US PCE Core (Inflation) Index (November, y/y) +4.1%
14:30 US Durable Goods Orders (November, m/m) -0.4%
16:00 US Consumer Confidence (December) +71.7
16:00 US New Home Sales (November, m/m) +0.4%


Earnings Calender December 23

Country Company Period
GE Douglas Q4
CAN Blackberry Q3


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